Realistic planning and support through margin volatility needed for dairy farmers post quota
With weaker dairy markets just months before the end of the quota regime, it is crucial that farmers intending to enter dairying or expand their enterprise would plan based on realistic assumptions on profitability. That is according to IFA National Dairy Chairman Sean O’Leary speaking from from the Virginia Dairy Show this week.
He added that while farming and breeding skills were vital to the sector, dairy farmers in the post quota era would need support to become better businessmen and financial planners than pre-quota. He said the dairy industry, financial institutions, the government and Teagasc must all play their full part to help farmers manage their single biggest challenge for the coming years: margin volatility.
“I am really heartened by the enthusiasm among dairy farmers: in the context of strong global demand growth linked to solid demographic trends, and our real ability to produce high quality milk and dairy products sustainably for the global market, I believe it is truly well placed,” O’Leary said.
“But I am also mindful that market volatility can knock down fragile farmer confidence just as much and as quickly as their incomes. We are getting a further taste of volatility at this very moment, due to the short term imbalance between global supply and demand. Furthermore, while we trade too little with Russia for the current export ban to affect us directly, it is an additional destabilising factor for global markets,”.
“Volatility of margins, not just of milk prices, is what dairy farmers will have to steer through in coming years, at a time when they have to invest on-farm for expansion and in some cases also in the development of their co-op’s processing or marketing facilities. Farmers will need support from co-ops and Teagasc to improve their business planning and financial management skills,” he said.
“Beyond that, I believe the industry, led by the Irish Dairy Board, must offer milk price and input hedging solutions which farmers can opt for. Banks must also be creative in their investment product offerings, allowing farmers greater repayment flexibility to reflect income volatility. Banks must be particularly responsive to the changeover period out of the superlevy regime, which will see farmers faced with considerable short term cash flow challenges. Last but not least, our Government must support the IFA farm taxation proposals on farmer’ financial contributions to their co-ops’ development plans, but especially on helping farmers manage volatility by putting away money in good times and bringing it back to be utilised and taxed in years when margins are lower,” he concluded.